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Federal Agencies Unveil New Wetlands Impact Mitigation Rule

On April 10, 2008, the U.S. Army Corps of Engineers (“Corps”) and the U.S. Environmental Protection Agency (EPA) published a much- anticipated new regulation setting forth standards for mitigation required under the Clean Water Act’s section 404 permit program for impacts to jurisdictional streams and wetlands. 73 Fed. Reg. 19,594 (Apr. 10, 2008). Going into effect on June 9, 2008, this rule establishes uniform standards for the section 404 permit program and consolidates previous guidance documents. In addition, the rule establishes a preference hierarchy for compensation mechanisms. In order of preference they are (1) mitigation banks, (2) in-lieu fee programs, and (3) permittee-responsible mitigation. Finally, the rule provides that whatever mitigation mechanism is chosen, the applicant must include a mitigation plan with a uniform, required set of components.

The rule has an overall goal of making all mitigation satisfy ecologically driven performance standards based on current science. To meet this goal, the Corps will rely on 12 standardized reporting criteria to evaluate both compliance and success of all mitigation mechanisms. The 12 criteria are objectives, site selection criteria, site protection instruments (conservation easements, for example), baseline information (for impact and compensation sites), credit determination methodology, a mitigation work plan, a maintenance plan, ecological performance standards, monitoring requirements, a long-term management plan, an adaptive management plan, and financial assurances. EPA hopes that “[t]his important change will dramatically improve the planning, implementation and management of all compensation projects and ensure more effective wetland and stream replacement projects.” EPA, Compensatory Mitigation Rule: Improving, Restoring, and Protecting the Nation’s Wetlands and Streams, Questions and Answers, available at www.epa.gov/owow/wetlands/pdf/Mit_rule_QA.pdf. The level of information provided must be commensurate with the scope and scale of the impacts being mitigated.

The prioritization of mitigation banks and in-lieu credits managed by third parties reflects the preference for market-based solutions to wetlands conservation. Pro-market analysts assert that these mechanisms have a higher likelihood of ecological success and reduce burdens on permittees. In addition, it is hoped that the long-term benefits of this rule will be to establish flexible mitigation options, promote use of high resource value mitigation sites, and reduce permitting times. Another interesting aspect of the rule is the requirement to include information about the mitigation in the public notice on the permit. This will allow for public comment on the development of the mitigation plan.

The agencies’ required approach to wetlands permitting remains unchanged—first, focus on avoiding, then on minimizing, and finally on compensating for unavoidable impacts to wetlands. Known as “sequencing,” the agencies will continue to require permit applicants to demonstrate that they have avoided and minimized wetland impacts to the maximum extent practicable before considering a mitigation plan. Once the first two issues have been addressed, the rule specifies three options to offset unavoidable impacts: (1) third-party compensation through mitigation banks, (2) in-lieu fee program credits, and (3) permittee-responsible mitigation under a watershed-based approach.

Under the first two compensation mechanisms, the permittee uses a third party to help meet mitigation obligations—basically paying this party to replace the resources that are impacted. Under the last mechanism, the permittee completes and monitors the success of the mitigation project itself.

The first, and preferred, option is for permittees to purchase credits from an approved mitigation bank. A mitigation bank is a wetland, stream, or other aquatic resource area that was created or restored by a third-party organization. The bank makes credits available by quantifying the aquatic resource functions it has restored, established, enhanced, or preserved within the bank. This option receives more favorable consideration because of a mitigation bank’s ability to conserve larger, more ecologically viable wetlands. In turn, mitigation banks are favored because they can operate in a timely and predictable fashion. The ongoing investment in and expert management of mitigation banks also suggest that mitigation measures will be successful vehicles for wetland conservation in the long term.

The second option for mitigating impacts involves payment to an in-lieu fee program. The manager of the program uses the funds for resource creation, restoration, enhancement, or preservation activities. Similar to mitigation banks, in-lieu fee programs may result in consolidation of mitigation efforts and the preservation of larger and more ecologically beneficial wetlands. The rule establishes guidelines aimed at improving the accountability and performance of such programs, which was a concern raised during the comment period. For example, a guideline requires the administration of an in-lieu fee program by a nonprofit or government agency that has a prior agreement with the regulatory agencies. The district engineer overseeing the project must approve the release of mitigation bank or in-lieu credits. The Corps also reserves the right to suspend or terminate mitigation bank or in-lieu fee instruments when they fail to meet performance standards.

Finally, the third-ranked mechanism in the hierarchy allows the permittee to undertake the restoration, creation, or enhancement of streams or wetlands. The permittee may undertake its mitigation measures on-site or adjacent to the site of impacts—the preferred method for permittee-generated mitigation. If nearby aquatic resources do notpresent restoration opportunities, habitat enhancement may take place off-site at another location but within the same watershed as the impact location. The site selected for off-site mitigation should strategically improve or maintain existing watershed functions and allow for preservation of riparian areas and buffer zones.

For permittees, the new rule provides clear and standardized guidance and in the long term should provide for much more timely approval of permit applications. In turn, the rule should result in a positive overall benefit to restoration efforts by promoting greater consistency, predictability, and ecological success of mitigation projects under the Clean Water Act.